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UK news 2016: Overview of UK news and factors affecting its economy.

UK News 2016

UK banking system is still vulnerable to a global financial crisis despite government's best efforts to improve their financial standing. This was said right after the 2008 crash of the banking system. In 2016 we just might be the same issue on our hands. A chief economist for the Bank of England noted that the government had watered down the proposal made by the ICB. This leaves UK banking system without the necessary financial aid to operate when fresh funds are dried up. This in turn will lead to a stock market crash with the British Pound depreciating to a parity with Euro.

The other issue that is definite to bother investors in the upcoming months is a strong possibility of Brexit. The closer we get to the date, the more turmoil we are going to see with British assets.

UK News 2016: Comparison with China stocks market

China’s authorities are also poised to eliminate billions of pounds to support the Shanghai stock exchange due to the fears of a 2008-style meltdown of the banking sector. This will cause further pressure on the pound due to the large and instant nature of the sell-off.

The Shanghai stock exchange will reopen once again following several shutdowns. It will surely come under pressure once again as nervous traders are highly concerned with a drastic fall in Chinese asset values in 2015. It may be a harbinger of a wider global slump in economy.

The vast majority of the UK banks' specialists are already selling-off local assets and sticking to long-term bonds. According to the analysts the upcoming year is not about making but preserving your money.

Investors are in fear of an ongoing low inflation in UK economy. This makes hard for banks to promote growth and could push the country back into recession and damage Europe’s economy as a whole. If that happens then it should take a decade to repair the EU economy and return to former positions.

UK News 2016: Global factors affecting UK economy

Senior officials at the ECB also issued a statement reassuring investors that Greek banks are secure following their rescue by the ECB last summer. As the UK is one of the major donors to the ECB, the bankruptcy of Greece is going to cause another hefty blow to the UK economy. But this is not likely to happen, if the situation remains as it is right now.

Unfortunately, political unrest in Greece provides for a strong possibility of a return of last year’s Eurozone crisis, when Greece almost left the euro. A return to drahma will play a major role in destabilizing stocks.

Falling prices of oil and low inflation are signaling a hard road for recovery to developed economies. And central bank responded by cutting interest rates in a desperate attempt to make commercial banks lend their cash to businesses and households. But this may lead to another credit crunch if lenders are not able to pay back. And then if banks run out of capital, all sorts of havoc will ensue. There should be enough of a buffer to take any losses, but the government does not have it. The Bank of England should think through its decision about the amount of capital that banking institutions need to hold. If not, the country will be in Greek shoes, so to say.

By Chieffinancing 25.07.2016

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